Wednesday, 07 December 2022

A Analysis

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[Adpated from Wikipedia] The BDI (Baltic Dry Index) measures the demand for shipping capacity versus the supply of dry bulk carriers. The demand for shipping varies with the amount of cargo that is being traded or moved in various markets (supply and demand).

The supply of cargo ships is generally both tight and inelastic—it takes two years to build a new ship, and the cost of laying up a ship is too high to take out of trade for short intervals,[7] the way you might park a car safely over the winter. So, marginal increases in demand can push the index higher quickly, and marginal demand decreases can cause the index to fall rapidly. e.g. "if you have 100 ships competing for 99 cargoes, rates go down, whereas if you've 99 ships competing for 100 cargoes, rates go up. In other words, small fleet changes and logistical matters can crash rates..."[8] The index indirectly measures global supply and demand for the commodities shipped aboard dry bulk carriers, such asbuilding materialscoalmetallic ores, and grains.

Because dry bulk primarily consists of materials that function as raw material inputs to the production of intermediate or finished goods, such as concreteelectricitysteel, and food; the index is also seen as an efficient economic indicator of future economic growth and production. The BDI is termed a leading economic indicator because it predicts future economic activity.[9]

Other leading economic indicators—which serve as the foundation of important political and economic decisions—are often measured to serve narrow interests, and subjected to adjustments or revisions. Payroll or employment numbers are often estimates; consumer confidence appears to measure nothing more than sentiment, often with no link to actual consumer behavior; gross national product figures are consistently revised, and so forth. Unlike stock and bond markets, the BDI "is totally devoid of speculative content," says Howard Simons, an economist and columnist at "People don't book freighters unless they have cargo to move."[12]

Significant levels

On 20 May 2008, the index reached its record high level since its introduction in 1985, reaching 11,793 points. Half a year later, on 5 December 2008, the index had dropped by 94%, to 663 points, the lowest since 1986;[13] though by 4 February 2009 it had recovered a little lost ground, back to 1,316.[14] These low rates moved dangerously close to the combined operating costs of vessels, fuel, and crews.[15][16]

By the end of 2008, shipping times had been already increased by reduced speeds to save fuel consumption, but lack of credit meant the reduction of letters of credit, historically required to load cargoes for departure at ports. Debt load of future ship construction was also a problem for shipping companies, with several major bankruptcies and implications for shipyards.[17][18] This, combined with the collapsing price of raw commodities created a perfect storm for the world's marine commerce.

During 2009, the index recovered as high as 4661, but then bottomed out at 1043 in February, 2011, after continued deliveries of new ships and flooding in Australia.[19]

Though rebounding to 2000 on 7 October,[20] by 3 February 2012, the index made a new multi-decade low of 647 on a continued glut of dry bulk carriers and decreases in orders of iron and coal.[21]

On 12 January 2016 the Baltic Dry Index reached the historic low of 402, presumably significantly below operating costs. This is what that looks like in the real world. 

North Atlantic Appears to be nearly DEVOID of Cargo Ships in-transit while world shipping fares little better. Worldwide, a visual inspection shows around half of cargo shipping capacity is sidelined, anchored and/or moored.

Cargo ships anchored and moored as of 1/12/16

Cargo and tankers Anchored and moored

Cargo ships underway as of 1/12/16Cargo and tankers underway

Commerce between Europe and North America as measured by cargo shipping is grinding to a standstill. It is just a matter of time, before the lack of raw goods input shows itself in retail and wholesale sales. The lack of sales revenue is guaranteed to appear in credit ratings, as defaults roll round, stressing the banks that made the loan. Should I say I told you so? Rewind three months back...

Those in the space that are concerned about the effect on banks should read our Pathogenic Finance report. Click the graphic below for a direct download:

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Thursday, 07 January 2016 09:00

I Was Finally Wrong on My Macro Call... By a Week! Featured

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For those who have been waiting for me to admit that I was wrong, here we go. On January 14, 2015 I forecasted a US and global market crash for the year 2015. Oh well, the crash started (and is still marching on) the 5th of January, 2016. I was a week off. My Bad! I also said that rates will not be materially raised. Yellen put 25 bp in, and all hell started breaking loose shortly thereafter. Of course, there are already plans to postpone the rate increases and even revert them into deeper NIRP... Yep!

A picture is worth a thosand words (1,100 words if you use Calibri font, 2,000 words for you hedgies, since I know those of you who don't follow me were levered up).

1-7-2016 CNBC front page 

1-7-2016 Bloomberg front page

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Bitcoin Blockchain technology has progressed from a little known nerd interest, to media darling to Mt. Gox/Silk Road infamy, to the realization that modern finance and the burgeoning Internet of Things as well as large swaths of everyday personal and corporate life will likely be based on it for the foreseeable future. The last year has witnessed a sea change in understanding of this new paradigm.

Pathogenic Finance is the free research report that illustrates the how's and why's of how this new technology will takeover legacy finance, and more importantly - which players have a leg up in the intellectual capital and strategic space. Below are a few key excerpts from this groundbreaking study which currently has no peer. 

thumb PathogenicFinance1.0a Page 01 Pathogenic Finance Research Report Table of Contents

The first couple of pages of the report are dedicated to illustrating how much capital (both financial and strategic) are going in the wrong direction in this paradigm shift. This wouldn't be the first time such a massive malinvestment (or lack of investment) has taken place to the detriment of those involved.

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Taking an autonomous, zero trust technology such as Bitcoin's public blockchain and neutering it in order to retrofit the tech into bank's back-end legacy systems is akin to trying to cram a Ferrari engine into a horseshoe and expecting the horse to move faster.

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Of course, the need to improve the back-end of the legacy financial system certainly does exist. Financial services are one of the most - if not the most - expensive consumer and business expenses, even when adjusted for inflation.

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The dilemma is, the introduction of peer-to-peer, autonomous finance concerns the current gatekeepers who reap the majority of the profits. We've seen this story before. 

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As excerpted from the page pictured above:

The Big Money Is Not Only Not Always Right – It Is Often Wrong!

Bitcoin tech was designed to create a fully autonomous system where the need to trust a middleman, third party or central authority is eliminated. As awareness of autonomy increases, and the sophistication of the technology progresses, autonomous computing, networking, and finance will become the de facto standard. This is not conjecture. Think about the last time you relied on a telephone switchboard operator (heteronomous middlemen, er … persons) to make a long distance phone call? This function has been replaced by cloud-based software and electronic cell networks. This ability is not nearly as new or novel as many believe it is. The rent seekers, luddites, and middlemen of the time went through material efforts to frustrate its proliferation.

According to internal memos,American Telephone & Telegraphdiscussed developing a wireless phone in 1915, but were afraid that deployment of the technology could undermine its monopoly on wired service in the U.S.  Wu, Tim (2008-06-10)."iSurrender: Apple's new iPhone augurs the inevitable return of the Bell telephone monopoly.". Slate.

In 1947 Bell Labs was the first to propose a cellular radio telephone network. The primary innovation was the development of a network of small overlapping cell sites supported by a call switching infrastructure that tracks users as they move through a network and passes their calls from one site to another without dropping the connection. In 1956 theMTAsystem was launched in Sweden. The early efforts to develop mobile telephony faced two significant challenges: allowing a great number of callers to use the comparatively few available frequencies simultaneously and allowing users to seamlessly move from one area to another without having their calls dropped. Both problems were solved by Bell Labs employee Amos Joel who, in 1970 applied for a patent for a mobile communications system (patent No. 3,663,762, issued May 16, 1972].However, a business consulting firm calculated the entire U.S. market for mobile telephones at 100,000 units and the entire worldwide market at no more than 200,000 units based on the ready availability of pay telephones and the high cost of constructing cell towers. As a consequence, Bell Labs concluded that the invention was "of little or no consequence," leading it not to attempt to commercialize the invention.

By year end 2015, the worldwide population is expected to reach 7.4 billion while the number of cellphone subscriptions is forecast to be slightly over 7.5 billion , marking the first time cellphone subscriptions will exceed the worldwide population. [ICI InsightsThis makes the mobile phone the most widely spread technology and the most common electronic device in the world.

As was the case with telecommunications, was the case with media and the internet. Those early adopters old enough to remember the early 90’s may recall the big US newspapers posting photographs of their paper on their websites instead of utilizing the far superior text capabilities of hypertext markup language (HTML). In 1998, a company called Catalog City (now imagined e-commerce as scanning paper catalogs and providing images of the pages online. During a similar (and thankfully short-lived) period, several companies – Yahoo among them – thought the best way to organize information on the internet was into hierarchical directories of hand-picked websites.

Fast forward a decade later and you find record labels and video media producers still pushing physical disks and law suits (to tune of several hundred million dollars) instead of embracing the technology of peer to peer file sharing and centrally distributed, electronic music files. The result was the absolute devastation of that industry’s revenue streams – to the tune of 75% eliminated and still counting…iTuned


These participants could not conceive the value to be captured by modern approaches. Things are no different this time around.

The report also delves into the transformation of modern capital markets from centralized and heteronomous, to decentralized to fully distributed and autonomous.

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The amount of money we're discussing is almost unbelievably large - measured in the quadrillions...

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Which is why there's a mad dash to claim the "First to File" patent application trophy by the likes of Goldman Sachs, Bank of America, JP Morgan, IBM, NYSE and Veritaseum. One may be surprised who the front runners in that space are.

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The most aggressive filer of patents and IP protection is Bank of America, although they are far from first and like Goldman Sachs, may be haunted by prior art issues...

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Regardless, the sums and markets at stakes are quite large... potentially unprecedented. Patent applications filed by Goldman Sachs, Bank of America and Veritaseum can potentially be measured in hundreds of billions on a discounted cash flow basis.

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Click here to download the Pathogenic Finance report now, for free.

Red-Blood-Cells-and-Virus-portrait for web

The market research report put together by team Veritaseum illustrating the untapped potential of autonomous finance, distributed computing and antifragile systems. Of even more interest to many is a patent application landscape and overview, complete with hypothetical DCF valuations and prior art research for entities such as Bank of America, Goldman Sachs and the NYSE/ARCA 

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I was recently asked what I thought about Segregated Witness. I am embarrassed to admit that I hadn’t given it much thought. (If you’re not already familiar with it, Bitcoin Magazine has a great introduction to Pieter Wuille’s proposal. For the more technically inclined, I also highly recommend watching Dr. Wuille’s presentation at the Scaling Bitcoin conference.)

Before I continue, the lawyer in me has some disclosures. First, I am not a security expert. Second, I have largely avoided the extensive discussions around the Segregated Witness proposal (except as an occasional lurker). As such, the concerns I have may have already undergone extensive treatment in other venues, most likely by people who are much smarter and much more informed than I am.

Overview: What It Is and How We Get It

Without getting into much detail, the proposal involves separating signatures from transactions and maintaining two separate but related data structures (instead of keeping everything together as is done today). This would allow many participants to cull or ignore certain signature data, which accounts for a large amount of the data in the blockchain. This would benefit scalability and (as a serendepitous side-effect) reduce the likelihood of some double-spend headaches, such as with m-of-n MULTISIG transaction races. This all seems great to me, as far as I understand it.

The next step is addressing the practical problem of how to get participants to abide by the new format and rules. Existing (legacy) participants would have no visibility into the signatures for new transactions, since those would be stored elsewhere, but you don’t want legacy participants rejecting blocks containing new transactions. You’d prefer they validate, but otherwise ignore them. Enter a “clever” hack: create an output format that new participants correctly validate against the new signature data, but one that also validates with the old rules by tricking legacy participants into believing it is spendable by anyone. To mitigate the risk of rogue participants absconding with bitcoins from new transactions, some threshold percentage of miners must agree to support the new transaction format. Once this occurs, new transactions can be included in any subsequent block.1

“In theory, there is no difference between practice and theory. In practice, there is.”
—Jan van de Snepscheut2

This Time Might Be Different

My primary concerns are:

  1. Does an upgrade path that creates transactions that look to legacy participants as if anyone can spend them present unique additional security risks; and
  2. If so, does the proposed deployment strategy sufficiently mitigate that risk?


I’m not so concerned about participants who value blockchain currencies (miners, parties who pay or receive bitcoins, some speculators, etc.). They already have an incentive to comply. Instead I’ll explore the above questions in the context of those who dislike blockchain currencies (perhaps because such technologies undermine rent extraction, social control, etc.).

Blockchain currencies (and the benefits associated with their adoption) could be set back decades, if people believe they can be “broken”. The details may be unimportant so long as fear of future breakage can be leveraged to marginalize adoption. Breaking a decentralized chain (such as Bitcoin) may persuade would-be adopters to elect privatized blockchain technologies instead. Among many important lessons, Mt. Gox allowed us to glimpse the harmful ripple effects when people lose confidence in any significant part of the ecosystem.3


(Albeit controversial) Fermi-esque estimates of commandeering the blockchain are on the order of US$100-1,000 M. While this may seem like an inconceivable expenditure, it is a rounding error for some nation states that spend such sums in an hour to two or on a single website. It’s also not outside the costs of fraud doing business for some ongoing concerns. Malware exploiting undiscovered vulnerabilities might significantly reduce that figure.


The deployment strategy associated with the Segregated Witness proposal is one that—as far as I know—is unique in that it contemplates creating transactions that appear to be spendable by anyone using legacy rules. Further, despite theoretical incentives, there appears to be a prisoner’s dillema in spending resources to validate transactions (or at least potentially widespread issue with validation correctness). This means that legitimate participants (including non-miners) can become unwitting coconspirators in an attack. What would an exploit look like? Keep in mind that I am not a security expert, but imagine something like the following:

A well-funded attacker clandestinely develops and deploys malignant miners, possibly leveraging various selfish mining and other techniques, possibly exploiting neighboring miners who don’t validate correctly (or at all), etc., to achieve an effective post-deployment hash rate sufficient to affect outcomes (some people claim this a threshold of 51%, but, depending on the sophistication of the attack and the exploits available, disruption could be achieved with less, perhaps significantly less). At first, the malignant miners appear to the rest of the network as legitimate participants. They claim they will enable new Segregated Witness transactions alongside their benign neighbors for a sufficient number of blocks to achieve the threshold adoption rate. The malignant miners optionally wait until some amount of unspent new transactions are accumulated within the blockchain. At some point after new transactions are enabled, the malignant miners cease to support the feature, and instead mine blocks that spend new transaction outputs as if they are old transactions (i.e., anyone can spend them). Any remaining participants who are not aware of the new transaction format (or don’t properly implement transaction validation) will see these transactions and the blocks that contain them as valid and forward them to their peers. This disruption may be temporary, but if it lasts longer than a few days, it may be enough for the attackers—and even opportunistic third parties—to cause a hangover sufficient to dissuade non-enthusiasts from ever returning to the technology.

Mixed Feelings

I don’t think an attack like that described above is likely, but I don’t think it’s complete fiction either. I’m not creative enough to conceive of optimizations that might make such an attack more practical, more harmful, or both. What I mean to highlight is the risk of trusting miners’ representations about their capabilities or intent. Otherwise benign legacy participants could misinterpret new transactions as spendable (which—as far as I’m aware—has not yet been an issue with previous deployments, certainly not at this potential scale). This could open the door to novel exploits that cause real harm, even if such exploits ultimately only amount to a temporary denial of service. In sum, I like Segregated Witness. I’m somewhat nervous (perhaps unnecessarily) about the proposed deployment. If I shouldn’t be, please don’t hesitate to let me know why. I’d love to be wrong.

1 Such deployments are commonly referred to as “soft forks”. The description above is a substantial oversimplification. The idea is to wait until so many miners play by the new rules that those who don’t must comply or risk having their blocks rejected by the rest of the network (thereby depriving them of precious block rewards). What typically happens is M of the last N blocks mined must come from miners who claim to support the feature. This is done by including a version number in each block associated with that feature. M and N could be, 950 and 1,000, respectively, approximating a 95% adoption rate of recently available mining resources.

2 Well, maybe.

3 We have always agreed that Mt. Gox was an institutional failure, not a technology one. Much like with a traditional bank, customers were required to transfer exclusive possession and control of their assets to Mt. Gox in order to enable the desired services. Customers couldn’t even get copies of the private keys used to manage their accounts. As we have seen with the subsequent popularization of MULTISIG wallets, this was sadly unnecessary. Neverless, the reputational harm to blockchain currencies was real.

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Two years ago, when I was about to wind down my very successful advisory blog to run headfirst into the Bitcoin Blockchain tech world, practically everyone I knew thought I was insane. Let's rewind back 23 days short of 2 years ago today -  Dec 26, 2013.

Now, back to today...

CFTC Commissioner: The Blockchain Could Cost Wall Street Jobs

CFTC Comissioner J Christopher Giancarlo said that the open ledger underlying bitcoin has "the potential to revolutionize modern financial ecosystems", pointing to examples like the recent blockchain working group established by the London Stock Exchange, the CME Group and several European banks and trade settlement organizations:

"This transformation will not come without consequences, however, including a greatly disruptive impact on the human capital that supports the recordkeeping of contemporary financial markets. On the other hand, the blockchain will help reduce some of the enormous cost of the increased financial system infrastructure required by new laws and regulations, including Dodd-Frank."

Blythe Masters, one of the most powerful women (and persons) on Wall Street turned down an offer to run Barclay's Investment in order to stay at her Blockchain tech startup, as reported by Reuters:

New Barclays Plc (BARC.L) Chief Executive Jes Staley approached his former JPMorgan colleague Blythe Masters about running the British bank's investment bank division, a person familiar with the matter said on Wednesday. But Masters told Reuters she was fully committed to running her company, Digital Assets Holdings - a startup designed to speed the trading of derivatives by using technology associated with bitcoin. She joined the company as chief executive in March.

Goldman Sachs Files Patent Application For Securities Settlement Using Cryptocurrencies.

The patent application, with a priority date of May 16, 2014, apparently attempts to lay claim to marker technologies like colored coins or the Open Assets Protocol (OAP). As excerpted:

[0014] In various embodiments, the described technology provides a virtual multi-asset wallet as a traditional securities and cash account for an individual, investor, and/or trader (“trader”). The wallet has technology to generate, manipulate, and store a new cryptographic currency, referred to as SETLcoins, for exchanging assets, such as securities (e.g., stocks, bonds, etc.) cash, and/or cash equivalents via a peer-to-peer network. In one or more embodiments, the described technology facilitates transactions between virtual wallets and, in the same and/or other embodiments, between a virtual wallet and non-virtual wallet technologies (and vice versa) on the same peer-to-peer network. For example, a virtual wallet can exchange (e.g., via a transaction method described below, such as a two-phase transaction) one or more SETLcoins for, e.g., U.S. dollars and/or other currency at a brokerage account, deposit account, bank account or other financial storage entity. Alternative or additionally, U.S. dollars and/or other currency at a brokerage account, deposit account, bank account or other financial storage entity can be exchanged for one or more SETLcoins in virtual wallet on the peer-to-peer network. 

I'm not sure it would be (or should be) allowed. If I recall correctly, there was a substantial amount of prior art surrounding colored coins as of May of 2014. Here's a wiki post from the createors of Coinprism, the colored coin wallet on May 15, 2014 (a day before the priority date of the Goldman Sachs submission):

Coinprism - The first colored coin web wallet
Colored coins allow you to store assets on the Bitcoin blockchain. There are many interesting applications to colored coin. You could have an IPO on the blockchain by issuing shares as a colored coins, and send them to your shareholders. The shares can then be traded almost instantaneously and for free through the Bitcoin blockchain. You could have smart properties represented by colored coins. You could store your house on the blockchain by issuing a single coin, then the ownership of the house can be transferred with a simple Bitcoin transaction.

If you are interested in the colored coin protocol we are using, you can have a look at this specification.
Coinprism Blockchain explorer:
Coinprism Asset directory:
Bitcoin Wiki:
Forum:Coinprism Developer Forum
API:Coinprism API documentation
Facebook:Coinprism Facebook page
Google+:Coinprism on Google+
Reddit:Coinprism on Reddit
Crunchbase:Crunchbase profile

Here's an excerpt from the description of the “invention”:

[0020] In one or more embodiments, the described technology adapts and/or generates cryptographic wallet which holds a new cryptographic currency (CC) (i.e., an SETLcoin) and corresponding cryptographic protocol for exchanging securities between nodes on a peer-to-peer network. Rather that representing a single transferable, object an SETLcoin wallet holds multiple positionable items (e.g., a security item, such as a share), herein referred to as a Positional Item inside Cryptographic currency (PIC), and a position (i.e., a quantity of the PIC represented by an SETLcoin wallet). A PIC is an agreed upon reference used by the peer-to-peer network to refer to, e.g., a particular security. For example, "IBM" (the stock market symbol of the company by the same name) can also be a PIC used by the peer-to-peer network to refer to IBM stock. A PIC, in some embodiments, is determined (and invalidated) by an issuer. An issuer (e.g., a company, underwriter, municipality, government, etc.) can have multiple PICS to represent different types of securities. For example, IBM stocks can be represented by PIC "IBM-S" and IBM bonds by PIC "IBM-B". In some embodiments, PICS are issued (and destroyed) by highly authoritative entities. For example, dollars available on the SETLcoin network represented by, e.g., PIC "USD" may be authoritatively issued by, for example, the U.S. Treasury. However, the described technology can issue PICS based on various other techniques (e.g., network node agreement, exchange regulation, lease or purchase, auction, etc.) and can be named based on, e.g., a company's name, its market symbol, its branding, its security name, availability, or a preferred format (e.g., length, abbreviation, etc.). 

[0021] An SETLcoin wallet or transaction can house a single security, as described above, or multiple denominations of the same security (e.g., 1 IBM-S SETLcoin valued at 100 IBM shares). SETLcoin wallets or transactions may also house multiple securities (e.g., 1 IBM-S SETLcoin and 2 GOOG-S SETLcoins). SETLcoins are exchangeable for, e.g., other SETLcoins and/or other cryptographic currencies (e.g., peercoins). For example, a single IBM-S SETLcoin may be exchangeable for one or more "GOOG" SETLcoins (i.e., Google shares), for 13,000 USD SETLcoins, 100 litecoins, and/or for 5 bitcoins. 

Wait a minute! That sounds awfully familiar... Here's a link to the same apparent methodology already in action BEFORE the priority date of Goldman's application - First Colored Coin Initial Public Offering [Monthly Dividends]

Colored coin offering

As I see it - and I fully admit that I am a layman FinTech entrepenuer, not an IP laywer, nor a software engineer - Goldman's application is not a true invention in any form. It appears to merely be a recast of the hard work of Flavien (visible to all thanks to his Github commits leading up to the Goldman patent application priority date) and others who have been deeply embroiled in solving these problems well before that application was filed. It's worth noting that Goldman isn't the first big bank to attempt to stake a claim in this emergent space. Be aware that this bank's CEO and chairman, who also sits on the board of the Federal Reserve Bank of New York, and who's company tried to patent Bitcoin-like tech 175 times (and was rejected each time), says:

Alas, I digress... Assuming arguendo (that’s lawyerspeak meaning, “for amusement”. Yes, I know I spend too much time around them...) that the Goldman Sachs patent is allowed in its published form, my intuition says that anyone using colored coins to represent real world assets (AKA “watermarked coins” or “tokenized assets”) would likely infringe on one or more of the (fairly broad) claims. I don't see how that would further the reach of the Bitcoin ecosystem, or any associated technologies. It would certainly further the bonus pool at Goldman, though.

There are definitely innovative startups who have truly unique and patentable inventions and quite possibly even better written and eariler submitted patent applications. Methinks not eveyone has the same access to the capital pool, though. It will be truly interesting to see if the new crowdfunding rules that allow non-accredited investors to partake in these high risk, high return startups enable the young scrappy startups to truly challenge the Goldmans of the world. I for one, believe the world would be a better place if that were true.


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Banks are headed towards rough waters and it's not just me who believes so. You may be getting the rose-colored glasses edition from the media and Wall Streeet (ahem, banks!) but all you have to do is read past the soundbyte laden 1st paragraph or so. Take this recent article from Bloomberg quoting the FDIC: FDIC Says Bank Profits Rose in Third Quarter, Warns of Credit Risk. We're going to ignore the credit risks potion (which is an entire article on its own) and focus on a singe sentence where the FDIC agrees with Reggie in that the Fed's monetary policy is B@llsh1t!:

"In the environment of low rates, interest-rate risk and credit risk have increased..."

Let's parse this statement. "In the environment of low rates, intereste -rate risks and credit risks have increase..." So, the premium on the interest that you are charged for being (or operating in a) high risk is not being charged, despite the fact said risks "have increased"?!?!?! Basically, teh safety cushion that modern markets price into higher risks has been removed and rates are low despite the fact that the risks about dicate rates should be high? Tell me, what's wrong with this picture?

Here's another snippet causing me to reminisce on a blast from the past:

"Revenue growth for the industry as a whole has been modest since 2009,” he said. “This is partly a reflection of the challenging interest-rate environment.” 

Uh huh! Listen these clips from 2011 below...

You've heard me pontificate on these topics before...

Mark-to-Fantasy Becomes an Ugly Reality with the Impact of (S&P) 500 Enrons
... le in most mark to model contraptions is the prevailing risk free interest rate - the same (not so) risk free rate that the world's central banks (including the Fed) are trying to so hard to synthetically su ...
Created on 01 November 2015
The Global Currency War - USA Edition
CNBC ran a very interesting article this morning, basically laying out the groundwork for the Fed to push interest rates lower - that's right, lower! This video puts it into perspective. Th ...
Created on 15 October 2015
Reggie Middleton's Prognosticated Market Crash and False Positives in Interest Rate Raise Promises
... forbid the Fed actually follows up on one of its many bluffs and does inch interest rates up. The real estate markets will collapse. Those who visit NYC and Miami know there's rampant construction ala 2007 ...
Created on 24 August 2015
As I Promised, the Nordic States' Central Bank QE Program Slides Backwards and Starts To Collapse
... xed exchange rate Free capital movement (absence of capital controls) An independent monetary policy It is both a hypothesis based on the uncovered interest rate parity condit ...
Created on 26 June 2015
How to Blow a Trillion Dollars and Look Like You (Don't) Know What You're Doing While Blowing It
...  Let's see how much tens of billions euros and a trillion dollar promise is worth in terms of buying time from an interest rate and currency storm... The Trillion Dollar Promise worked for 4 month ...
Created on 06 May 2015
2010 Contrarian Prediction of the Disastrous Consequences of ZIRP & Free Money Policy In the Banking System, Year 5
... ing affected by low interest rates— they are killing its spread income. Now, go to the 0:55 marker in this video and listen for a minute or two, then continue reading. Chairman and Chief Executive  ...
Created on 17 April 2015
"Fu$k the Fundamentals!": Negative Rates In EU Will Absolutely Wreck the Very System the ECB Sought to Save
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Veritaseum, our peer-to-peer financial services platform, sits directly on top of the Bitcoin Blockchain. That gives it an enormous amount of power. How much? Try 525 Googles!

Roughly excerpting the reasoning from an article by @EvanderSmart interviewing Balaji Srinivasan, the chairman of the bitcoin hardward manufacturer 21 Inc., it is estimated that Google's computing power based on the assumption that they are using 1e7 servers, for 1e7 H/s per Xeon (and ~10 Xeons/server) is 1 PH/s. One petahash equals 1,000,000 gigahash or 1000 terahashes. Bitcoin reached 1 PH/s of computing power/speed on September 15th, 2013.

Twenty six months later it is now averaging over 525 PH/s, or over 525,273,500 GH/s. That's over a 525x increase! A simple average has Bitcoin's power growing at nearly 35 Googles (petahashes) per MONTH on an exponential basis! Yeah, that's right - Veritaseum's computing power is cooking!

Bitcoin blockchain vs. Google

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Change the World for the Better - Kevin Spacey Pay it ForwardI was watching the movie "Pay it Forward" with my 9 year old daughter last night, and we were both moved by the homework assignment Kevin Spacey gave the child star of the movie -"Think of an idea to change the world and put it into action". Well, here I go....

The CEO of Morgan Stanley just got appointed to the board of the NY Federal Reserve. He joins the CEO and chairman of JP Morgan, Jamie Dimon. These are two of the largest and most powerful banks in the world and these appointments represent the most blatant illustration of regulatory capture that I have ever witnessed. The NY Fed is the most powerful, influential and direct regulator of these two banks, yet the top executives of each bank sits on the board of their own regulators? That is EXACTLY like putting the fox in charge of the hen house..

regulatory capture

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Throughout most of the history of America, assets were valued by either the amount of money they made you or the amount of money someone would buy them for. Not too long ago, the smartest guys in the room came up with an idea to value things by what we want them to be versus what they really were. Believe it or not, that is why we are never going to get a significant rate increase in the US, unless it is forced upon us by the markets… and when that rate increase does occur - BAM! Let me explain in more detail.

Enron was a diversified energy company and at it's demise was the largest corporate bankruptcy in American history. In the beginning, Enron's natural gas business was substantial and its accounting had been straightforward, ie. the cost to supply gas was matched with the revenues to delivering gas to customers in plain vanilla, discrete time periods (ex. quarters). Then this financial engineer named Ken Skilling joined the company and changed all of that. Now, the energy trading business used mark-to-model accounting, with the reasoning that such accounting represented "true economic value". Enron became the first non-financial company to use the method to account for its complex long-term contracts, although it's arguable that the contracts were financial in nature.

The Enron mark-to-model accounting requires that once a long-term contract was signed, income is estimated as the present value of net future cash flow. You see, the problem with that is that there aren’t too many of us that can predict the future very accurately, thus measuring future cash flows now is akin to counting ass hairs on a pink unicorn. Alas… I digress. Enron proceeded with this methodology anyway, and as you may have guessed, dramatically misleading results ensued (misleading to investors and shareholders, that is).

Modeled accounting DCF income would be recorded from these projects, but actual cash never arrived. In order for Enron to show rising earnings, they had to juice up the assumptions in the models, thus more accounting income was booked, but there was no cash to back it up. Never fear, the SEC approved the accounting method for Enron in its trading of natural gas futures contracts on January 30, 1992. Not being enough paper income for Enron, further boldened by the ruling and apparent support of the SEC, it then extrapolated its mark to model accounting methods and fictitious earnings methodology to other areas in the company. Why? Because Wall Street demands increasing accounting earnings over increasing economic value, so Enron simply used its models to help Wall Street realize its wishes. It was during this time that Enron actually emboldened the financial sector to get model-creative. After all they were getting away with it, weren't they?

In July 2000 (yeah, right about bubble burst time), Enron and that other well known energy sector company - Blockbuster Video (why didn’t anyone ask???) - signed a 20-year contract to introduce on-demand entertainment to various U.S. cities by year-end (you know, something like today’s Netflix streaming service). It only took a few pilot projects for Enron to recognize estimated profits of more than $110 million from the deal. When the network failed to work (as you knew it would when an energy company with shady accounting practices gets into the media distribution business), Blockbuster withdrew from the contract. Despite Blockbuster’s exit, Enron continued to book future (modeled) profits on a deal that actually and at the present resulted in a lossEventually, the Ponzi scheme collapsed, along with everything attached to it. Enron’s execs got into a lot of trouble, but the banking industry and many other industries took note and said, “Hey it may not too wise to push fake broadband, but the SEC and FASB ok’d the mark to fantasy thing. This was 2000. The rest is simply history.

In reviewing the chart below, be aware of the following facts:

  1. The data is taken from the Federal Reserve... Don't shoot the messenger!
  2. The primary input variable in most mark to model contraptions is the prevailing risk free interest rate - the same (not so) risk free rate that the world's central banks (including the Fed) are trying to so hard to synthetically suppress.
  3. The world's banks (and the US banks in particular) are responsible for funding companies, both through whole loans and through securities markets. If those banks' shrivel (ahem, Deustche Bank), then the loans and securitizations shrivel as well. That's why the ECB has spent hundreds of billions of EUR to prevent it and the Fed and the BOJ are well into the trillions. You know how that has turned out, right? If not, reference "ECB's Own Data Shows QE Program As Utter Failure, Largest Banks Dwindle, Depositor's Capital Eyed for Bail-Ins"
  4. If banks hit a cyclical and/or structural downturn, or if rates spike, or if regulators decide to outlaw lying about what's on the books... Watch out below...

thumb Mark to Fantasy Drives the who Corporate Profit Engine Now

Next up, I will show all how Veritaseum was designed to enable individuals and companies to sidestep much if not most of this nonsense. You see, Veritaseum allows zero trust transactions while enabling all to retain full control, custody, possession and ownership of your assets. You can't mark to model, or mark to fantasy, because the reality is always there in your face all to see

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